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Thread: Greece's debt default a precursor for US states ...

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    Banned Melonie's Avatar
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    Default Greece's debt default a precursor for US states ...

    In a nutshell, Greece has run up gov't debt levels that exceed 100% of their GDP. This has been accomplished mainly by allowing gov't employees to become 40% of the Greek economy, by allowing union wages and benefits to rise to exorbitant levels, by allowing gov't funded social welfare / retirement benefits to become incredibly generous, and by allowing rich Greeks with smart accountants and international connections to avoid paying taxes.

    As a result, Greece is no longer able to borrow yet more money with which to continue paying those gov't employees and social welfare / retirement benefits. Greece has approached both the European Union and the IMF for 'bailout' money which in essence would allow them to borrow yet more money at cheap interest rates. However, the EU members / IMF are demanding that, as a condition of 'bailout' loans, Greece reduce gov't employee pay rates and benefit costs, Greece reduce social welfare and retirement benefit payouts, Greece enact stiff new taxes etc. in order to provide some probability that Greece can eventually balance its expenditures versus tax revenues and actually make good on its gov't bond payments.

    However, as a direct results of threatened pay cuts, benefit cuts, major tax increases etc., Greek gov't workers, union workers, and dissidents of all sorts are now 'taking to the streets' in protest.




    In terms of fundamentals, what Greece / Portugal / Spain are to the European Union, California / New Jersey / New York are to the US Federal Gov't. And not surprisingly, California / New Jersey / New York are rapidly approaching the same point that Greece has already reached ... i.e. that downgraded credit rating will make it impossible for them to continue borrowing money, such that pay cuts, benefit cuts, major tax increases etc. will finally be forced upon them. California has already gone to the US Federal Gov't for a 'bailout', and was to told no. As such, be prepared to see Greek-like protests in the streets of California / New Jersey / New York very soon as economic reality finally forces these states to start cutting gov't employee pay rates, cutting social welfare benefit checks, and enacting major tax increases on 'average' citizens !!!


    Of course, the argument is also being made that the Greek 'bailout's TRUE purpose is to cover the asses of rich European investors and banks who are on the hook for huge amounts of Greek gov't bond debt !






    (snip)"Perhaps what I find more unsettling that the financial impact of certain policies and events, is what happens afterwards. What is the social impact of bad financial/social policies?

    After all, I don't worry about the impact of good policies and good events since the impact is usually beneficial or at least not bad. However, it sunk in some years ago the following important observation:

    ECONOMIC DISINTEGRATION LEADS TO SOCIAL DISINTEGRATION

    When economies break down, you are left with people that have desperate needs. This was true in my former country Yugoslavia during the 1990s. It was true of the former Soviet Union during the late 1980s. It was true of almost every country throughout history.

    As you watch Greece today, you see disintegration right before your eyes. In recent years, Greece's government kept spending the country into today's resulting chaos (think "Keynes"). The country may or may not be "bailed out" by the European Union. Of course, bailing out Greece means that other struggling countries will be forced to come up with the money to do so. What condition will those countries be in? After all, they are not in good shape today.

    The next observation is also a very important one when we talk about heady topics like "economic collapse" and the resulting social disintegration:

    THE #1 REASON WHY ECONOMIES COLLAPSE IS BECAUSE GOVERNMENTS
    AND THEIR SPENDING (DEBT AND INFLATION) GREW OUT OF CONTROL.

    That's right...excessive and growing government is the #1 reason why economies collapse. Throughout history, various groups of people petitioned the government for money and assistance because they think that there is some endless pot of goodies called "government money". Government does not have its own money...it only has what it can extract by force from others (taxes). In the case that it prints money, this is also not a "freebie". Printing money leads to inflation and inflation is nothing more than an insidious stealth tax than consumers ultimately pay. Runaway inflation also leads to a currency collapse.

    Throughout my life, I have always strongly called for limiting government. Yes...the main reason is that I have seen over and over again, the dangers of growing or unlimited government. Whether you call it "socialism" or some other "-ism" like communism or totalitarianism, it is still in the general realm of "statism" and this is something that must...MUST...be limited. Not only for the good of society but also ironically for the good of government itself.

    The "good-hearted" among us like to see the government be there in those cases when individuals need a helping hand and this is fine. The problem is when the situation grows out of control. At that point, no one gets any help. It becomes desperate as government itself becomes a casualty of its own excesses.

    Is America next? If America continues on its current path, the answer is a sad yet resounding one...YES."(snip)
    Last edited by Melonie; 05-05-2010 at 03:19 AM.

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    Banned Eric Stoner's Avatar
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    Default Re: Greece's debt default a precursor for US states ...

    Another Socialist success story ! The problem with relying on OPM ( other people's money ) is that sooner or later, it runs out. California has found this out. The New York Legislature refuses to accept it ( their latest brainstorm is to borrow MORE money to give N.Y. taxpayers property tax rebates !! ). And Governor Christie in N.J. is being vilified by the usual suspects ( public employee unions and the N.J. N.E.A. ) for trying to restore some semblance of fiscal sanity to Trenton. So far, the taxpayers have been supportive. For the first time in history, N.J. taxpayers voted down more local school budgets than were approved.

    The demonstrations in Greece are amazing. Where do these people think the government will get the money ? Don't they realize that their country is broke ? Sadly, the E.U. is repeating the mistake the U.S. made with NYC in 1975-1977. Rather than let NYC go broke and into Bankruptcy, the Feds bailed it out with loan guarantees. The prime beneficiaries were the big banks who held billions in NYC debt. They should let Greece go broke and the rest of the "PIGS" = Portugal, Italy, Greece and Spain. Merkel and the Germans know better; Sarkozy used to know better but they are trying to prop up a dying EU system.

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    Default Re: Greece's debt default a precursor for US states ...

    ^^^ agreed in principle. However, it is a very difficult proposition to try and make gov't workers, teachers, union workers etc. understand that their pay and benefits need to be cut by 30% or whatever to bring gov't expenditures into line with tax revenues and private sector wage / benefit costs. It is an equally difficult proposition to try and get uber-rich citizens to give up their legal tax shelters ( without prompting them, and / or their capital, to flee the country ). From a pragmatic standpoint, it is much easier for politicians to raise sales tax rates on all residents, to impose higher fees on a wide variety of services etc.

    actually, there is a striking similarity ... as well as a timely one ... between Athens and Los Angeles !

    (snip)"Los Angeles on the Brink of Bankruptcy - What Mayor Villaraigosa must do to save the city.



    Los Angeles is facing a terminal fiscal crisis: Between now and 2014 the city will likely declare bankruptcy. As a result of his delays in responding to the city's fiscal emergency, Mayor Villaraigosa has squandered not just his career, but his relevancy. He continues to insist that bankruptcy is not an option for Los Angeles even as anyone who can count understands there is no other option.

    Over the last decade, the two main pension funds in Los Angeles have seen their assets grow at just 3.5% and 2.8% annually... When Mr. Villaraigosa took office there were 4.73 million jobs in Los Angeles and 252,000 unemployed people. Today, there are just 4.19 million jobs in Los Angeles and over 632,000 unemployed people.

    The mayor can't control the economy.In order to pull the city back from the brink and put Los Angeles on the road to recovery, the following steps must be taken:

    - Defined benefit pensions must be replaced with 401(k) accounts for new employees.

    - Current employees must pay much more than 6% (or 9% in the case of public safety employees) of their salaries for their pension benefits.

    - Increase the retirement age to 65.

    - Reduce city staff back to 2005 levels.

    - Eliminate the $300 million spent on costly retiree health-care benefits. "(snip)

    ~
    Last edited by Melonie; 05-05-2010 at 03:37 PM.

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    Default Re: Greece's debt default a precursor for US states ...

    again not wanting to swing too far toward the political, but both Greeks and Californians seem to have a huge perception gap in regard to where the gov't money necessary to fund their gov't paychecks, social welfare benefit checks, retirement checks etc. actually comes from.




    (snip)"Oakland teachers vote to OK a strike

    Unfortunately for Oakland, its teachers do not understand simple math. The city is broke, bankrupt, yet Oakland teachers vote to OK a strike, insisting on a wage hike.

    Oakland teachers are ready to strike again if necessary if talks sour at the bargaining table, union officials said Tuesday.

    On the heels of last week's one-day walkout, the teachers voted 565-184 late Monday to give union leaders the option to "take further actions to secure a fair contract, up to and including a strike," according to Oakland Education Association officials.

    The two sides are far apart on several issues including wages, class size, caseloads for school nurses and counselors, and staffing for adult education.

    Union leaders have said a raise must be part of any deal.

    Administrators have said they can't afford it, given an $85 million budget shortfall for the next school year.
    565 Oakland Teachers Do Not Understand Simple Math

    The vote authorizing a strike was 565-184. This tells me that a minimum of 565 Oakland teachers are unfit to teach because they do not comprehend simple math. They should be fired.

    The only way to resolve these issues is in bankruptcy court. Before Oakland wastes more taxpayer money of a situation that is clearly beyond repair, it needs to pursue bankruptcy options to dissolve those pension contracts.

    Regrettably, the "crazy and irresponsible" city administrator and council will not even produce a report that details how big the problem is."(snip)


    Greeks and Californians have also shared an extended 'grace period' where lenders had been willing to continue approving new loans upon new loans ( in the form of gov't bonds ) which in turn allowed the Greek and California gov'ts to continue funding gov't paychecks, social welfare benefit checks, retirement checks etc. despite insufficient tax revenues to cover said spending. However, as the accumulated pile of loans kept growing while tax revenues did not, the lenders first got nervous - demanding much higher interest rates be paid by the Greek and California gov'ts for future loans - which only exacerbated the Greek and California gov'ts budget problems by consuming more and more money for interest payments / debt service. Greece and arguably California gov'ts have now reached the point where they can no longer service their existing debts while at the same time continuing to send out gov't paychecks, social welfare benefit checks, retirement checks etc. Yet the recipients of those gov't paychecks are still operating in 'entitlement mode' i.e. being entitled to an annual pay raise ... being entitled to retire at age 55 ... being entitled to social welfare benefits sufficient to cover food / rent / utilities / medical etc.


    Of course Greece and California share yet another common attribute which exacerbates their economic problems ... neither 'owns a printing press' where they can simply print money out of nowhere in order to facilitate future spending. Unfortunately, the EU and the US Fed DO 'own a printing press' !


    Sadly, the E.U. is repeating the mistake the U.S. made with NYC in 1975-1977. Rather than let NYC go broke and into Bankruptcy, the Feds bailed it out with loan guarantees. The prime beneficiaries were the big banks who held billions in NYC debt
    Well, herein lies the 'dirty little secret' of all gov't 'bailouts' ... protecting the uber-rich from taking losses, while at the same time increasing the burden on average citizens.

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    Default Re: Greece's debt default a precursor for US states ...

    The big problem for Greece and the rest of the "PIGS" ( along with American state and local governments ) is that they are unable to inflate their way through their problems. In Europe, the ECB controls the amount of Euros issued. No more Drachmas, Lira or Pesos. And whatever they used to use in Ireland ( Pounds ? ). In the U.S., California, L.A., Oakland, Illinois, N.Y. , N.J., Michigan and a few others cannot print their own currency. Technically states cannot go into Bankruptcy the way cities and counties can. But, states can go into default. THAT is the REAL solution for all of this. Let Greece and the rest of the PIGS go into default. Let them sit down with their bankers and borrowers and do their own workouts. Same thing for our states and cities. Nothing enables wringing out the fat and waste more than tight revenues.
    Last edited by Eric Stoner; 05-06-2010 at 11:58 AM.

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    Default Re: Greece's debt default a precursor for US states ...

    Greece has too big of a symbolic value to the European Union to let down. Portugal doesn´t IMO. So Portugal will have a lesser chance of being bought out.

    Between the lines, Merkel already threatend with Germany pulling out of the Euro, which would mean the end of the Euro.

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    Default Re: Greece's debt default a precursor for US states ...

    ^^^ Merkel and her gov't has problems selling hard working Germans on the idea that they 'owe' their Greek counterparts part of their hard earned German euros in the form of a 'bailout' ... and especially so when the comparative pay rates / social welfare benefit levels / retirement benefit levels in Greece are better than they are in Germany. It is no coincidence that the Greek bankruptcy stems at its root from the high standard of living levels of Greek gov't workers / social welfare benefit recipients / retirees, and also no coincidence that Germany's lower levels have resulted in lower taxes ( compared to Greece anyhow ) and lower levels of social welfare / retirement spending thus providing Germany better fiscal health on a national level.

    In the way of another similarity, like Merkel's passing threat to pull out of the EU, the governors of Texas and a few other US states have also dropped passing treats to pull out of the US Dollar ( i.e. secede from the Union ). Of course, in both cases the motivation is the same at the root level ... having their hard earned tax dollars 'transferred' to subsidize another state. This already happened to Texas and some other US states as part of last year's 'stimulus' package ... where federal tax money extracted from every state was disproportionately 'transferred' to California / New York / New Jersey etc. as block grants in order to allow those free spending states to avoid default LAST year. However, so far there is no similar 'transfer' of federal tax money approved for this year ( although California went to DC again begging for one, and some US senators are talking about a 'stimulus 2' package ).

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    Default Re: Greece's debt default a precursor for US states ...

    When people don't work and businesses fail, government tax revenues fall. The states cannot go into debt like the Fed. They can reduce services, but this is quite unpopular. This is their dilemma and by and large it is not their faults. But the solutions are their responsibilities. Insulating people from their government's finances is producing angry voters. Big problems there.
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